Definition of Management
Management
management refers to the individuals in an entity that have the authority and the responsibility to manage the entity. The positions of these individuals, and their titles, vary from one entity to another and, to some extent, from one country to another depending on the local laws and customs. Thus, when the context requires it, the term includes the board of directors or committees of the board which are designated to oversee certain matters (e.g., audit committee).
Related Terms:
Also called surplus management, the task of managing funds of a financial
institution to accomplish the two goals of a financial institution:
1) to earn an adequate return on funds invested, and
2) to maintain a comfortable surplus of assets beyond liabilities.
A management style that de-emphasizes the significance of economic
and market cycles, focusing instead on the analysis of individual stocks.
Very short maturity bills that the Treasury occasionally sells because its cash
balances are down and it needs money for a few days.
The application of financial principals within a corporation to create and
maintain value through decision making and proper resource management.
Percentage of shares held by persons closely related to a company, as
defined by the Securities and exchange commission. Part of these percentages often is included in
Institutional Holdings -- making the combined total of these percentages over 100. There is overlap as
institutions sometimes acquire enough stock to be considered by the SEC to be closely allied to the company.
Leveraged buyout whereby the acquiring group is led by the firm's management.
An investment advisory fee charged by the financial advisor to a fund based on the fund's
average assets, but sometimes determined on a sliding scale that declines as the dollar amount of the fund increases.
Related: Investment management.
Buying a well-diversified portfolio to represent a broad-based market
index without attempting to search out mispriced securities.
Related: Investment management
The process of identifying and evaluating risks and selecting and managing techniques to
adapt to risk exposures.
Related: asset management
A management style that begins with an assessment of the overall
economic environment and makes a general asset allocation decision regarding various sectors of the financial
markets and various industries. The bottom-up manager, in contrast, selects the specific securities within the
favored sectors.
The management of current assets and current liabilities to maximize shortterm liquidity.
The production of financial and non-financial information used in planning for the future; making decisions about products, services, prices and what costs to incur; and ensuring that plans are implemented and achieved.
Strategic management accounting
The provision and analysis of management accounting data about a business and its competitors, which is of use in the development and monitoring of strategy (Simmonds).
Value-based management
A variety of approaches that emphasize increasing shareholder value as the primary goal of every business.
management control
This is difficult to define in a few words—indeed, an
entire chapter is devoted to the topic (Chapter 17). The essence of management
control is “keeping a close watch on everything.” Anything can
go wrong and get out of control. management control can be thought of
as the follow-through on decisions to ensure that the actual outcomes
happen according to purposes and goals of the management decisions
that set things in motion. Managers depend on feedback control reports
that contain very detailed information. The level of detail and range of
information in these control reports is very different from the summarylevel
information reported in external income statements.
activity-based management (ABM)
a discipline that focuses on the activities incurred during the production/performance process as the way to improve the value received
by a customer and the resulting profit achieved by providing
this value
Certified Management Accountant (CMA)
a professional designation in the area of management accounting that
recognizes the successful completion of an examination,
acceptable work experience, and continuing education requirements
cost management system (CMS)
a set of formal methods
developed for planning and controlling an organization’s
cost-generating activities relative to its goals and objectives
cost object anything to which costs attach or are related
Institute of Management Accountants (IMA)
an organization composed of individuals interested in the field of management accounting; it coordinates the Certified management
Accountant program through its affiliate organization
(the Institute of Certified management Accountants)
management accounting
a discipline that includes almost
all manipulations of financial information for use by managers
in performing their organizational functions and in
assuring the proper use and handling of an entity’s resources;
it includes the discipline of cost accounting
Management Accounting Guidelines (MAGs)
pronouncements of the Society of management Accountants of
Canada that advocate appropriate practices for specific
management accounting situations
management control system (MCS)
an information system that helps managers gather information about actual organizational occurrences, make comparisons against plans,
effect changes when they are necessary, and communicate
among appropriate parties; it should serve to guide organizations
in designing and implementing strategies so that
organizational goals and objectives are achieved
management information system (MIS)
a structure of interrelated elements that collects, organizes, and communicates
data to managers so they may plan, control, evaluate
performance, and make decisions; the emphasis of the
MIS is on internal demands for information rather than external
demands; some or all of the MIS may be computerized
for ease of access to information, reliability of input
and processing, and ability to simulate outcomes of
alternative situations
management style
the preference of a manager in how he/she interacts with other stakeholders in the organization;
it influences the way the firm engages in transactions and
is manifested in managerial decisions, interpersonal and
interorganizational relationships, and resource allocations
open-book management
a philosophy about increasing a firm’s performance by involving all workers and by ensuring
that all workers have access to operational and financial
information necessary to achieve performance improvements
performance management system
a system reflecting the entire package of decisions regarding performance measurement and evaluation
Society of Management Accountants of Canada
the professional body representing an influential and diverse
group of Certified management Accountants; this body produces
numerous publications that address business management issues
Statement on Management Accounting (SMA)
a pronouncement developed and issued by the management
Accounting Practices Committee of the Institute of management
Accountants; application of these statements is
through voluntary, not legal, compliance
strategic resource management
organizational planning for the deployment of resources to create value for customers and shareholders; key varibles in the process include the management of information and the management of change in response to threats and opportunities
supply-chain management
the cooperative strategic planning,
controlling, and problem solving by a company and
its vendors and customers to conduct efficient and effective
transfers of goods and services within the supply chain
synchronous management
the use of all techniques that help an organization achieve its goals
total quality management (TQM)
a structural system for creating organization-wide participation in planning and implementing a continuous improvement process that exceeds
the expectations of the customer/client; the application
of quality principles to all company endeavors; it is also known as total quality control
management buyout (MBO)
Acquisition of the firm by its own management in a leveraged buyout.
Demand Management Policy
Fiscal or monetary policy designed to influence aggregate demand for goods and services.
Abusive Earnings Management
The use of various forms of gimmickry to distort a company's true financial performance in order to achieve a desired result.
Abusive Earnings Management
A characterization used by the Securities and Exchange
Commission to designate earnings management that results in an intentional and material misrepresentation
of results.
Earnings Management
The active manipulation of earnings toward a predetermined target.
That target may be one set by management, a forecast made by analysts, or an amount that is consistent
with a smoother, more sustainable earnings stream. Often, although not always, earnings
management entails taking steps to reduce and “store” profits during good years for use during
slower years. This more limited form of earnings management is known as income smoothing.
Operational Earnings Management
management actions taken in the effort to create stable
financial performance by acceptable, voluntary business decisions. An example: a special discount
promotion to increase flagging sales near the end of a quarter when targets are not being met.
Real Actions (Earnings) Management
Involves operational steps and not simply acceleration
or delay in the recognition of revenue or expenses. The delay or acceleration of shipment would
be an example.
management expense ratio (MER)
The total expenses expressed as an annualized percentage of daily average net assets. MER does not include brokerage fees and commissions, which are also payable by the Fund.
management fee
The fee paid to the fund’s manager for supervising the administration of the fund.
Analyst
Employee of a brokerage or fund management house who studies companies and makes buy-and-sell
recommendations on their stocks. Most specialize in a specific industry.
Annual fund operating expenses
For investment companies, the management fee and "other expenses,"
including the expenses for maintaining shareholder records, providing shareholders with financial statements,
and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are included.
BONDPAR
A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the
individual securities held in the portfolio. BONDPAR decomposes the return into those elements beyond the
manager's control--such as the interest rate environment and client-imposed duration policy constraints--and
those that the management process contributes to, such as interest rate management, sector/quality allocations,
and individual bond selection.
Buy-side analyst
A financial analyst employed by a non-brokerage firm, typically one of the larger money
management firms that purchase securities on their own accounts.
Cash cycle
In general, the time between cash disbursement and cash collection. In net working capital
management, it can be thought of as the operating cycle less the accounts payable payment period.
Committee, AIMR Performance Presentation Standards Implementation Committee
The Association for Investment management and Research (AIMR)'s Performance Presentation Standards Implementation
Committee is charged with the responsibility to interpret, revise and update the AIMR Performance
Presentation Standards (AIMR-PPS(TM)) for portfolio performance presentations.
Country selection
A type of active international management that measures the contribution to performance
attributable to investing in the better-performing stock markets of the world.
Exact matching
A bond portfolio management strategy that involves finding the lowest cost portfolio
generating cash inflows exactly equal to cash outflows that are being financed by investment.
Except for opinion
An auditor's opinion reflecting the fact that the auditor was unable to audit certain areas
of the company's operations because of restrictions imposed by management or other conditions beyond the
auditor's control.
Expense ratio
The percentage of the assets that were spent to run a mutual fund (as of the last annual
statement). This includes expenses such as management and advisory fees, overhead costs and 12b-1
(distribution and advertising ) fees. The expense ratio does not include brokerage costs for trading the
portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of
Additional Information (SAI). the SAI is available to shareholders on request. Neither the expense ratio or the
SAI includes the transaction costs of spreads, normally incurred in unlisted securities and foreign stocks.
These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an
Operating Expense Ratio (OER).
Financial control
The management of a firm's costs and expenses in order to control them in relation to
budgeted amounts.
Fund family
Set of funds with different investment objectives offered by one management company. In many
cases, investors may move their assets from one fund to another within the family at little or no cost.
Golden parachute
Compensation paid to top-level management by a target firm if a takeover occurs.
Holding company
A corporation that owns enough voting stock in another firm to control management and
operations by influencing or electing its board of directors.
Hybrid
A package containing two or more different kinds of risk management instruments that are usually
interactive.
Investment income
The revenue from a portfolio of invested assets.
Investment management Also called portfolio management and money management, the process of
managing money.
Mangement's discussion
A report from management to the shareholders that accompanies the firm's
financial statements in the annual report. This report explains the period's financial results and enables
management to discuss other ideas that may not be apparent in the financial statements in the annual report.
Margin call
A demand for additional funds because of adverse price movement. Maintenance margin
requirement, security deposit maintenance
Margin of safety With respect to working capital management, the difference between 1) the amount of longterm
financing, and 2) the sum of fixed assets and the permanent component of current assets.
Marketplace price efficiency
The degree to which the prices of assets reflect the available marketplace
information. Marketplace price efficiency is sometimes estimated as the difficulty faced by active
management of earning a greater return than passive management would, after adjusting for the risk
associated with a strategy and the transactions costs associated with implementing a strategy.
Merchant bank
A British term for a bank that specializes not in lending out its own funds, but in providing
various financial services such as accepting bills arising out of trade, underwriting new issues, and providing
advice on acquisitions, mergers, foreign exchange, portfolio management, etc.
Pass-through rate
The net interest rate passed through to investors after deducting servicing, management,
and guarantee fees from the gross mortgage coupon.
Passive investment strategy
See: passive management.
Performance shares
Shares of stock given to managers on the basis of performance as measured by earnings
per share and similar criteria. A control device used by shareholders to tie management to the self-interest of
shareholders.
Proxy
Document intended to provide shareholders with information necessary to vote in an informed manner
on matters to be brought up at a stockholders' meeting. Includes information on closely held shares.
Shareholders can and often do give management their proxy, representing the right and responsibility to vote
their shares as specified in the proxy statement.
Shareholders' letter
A section of an annual report where one can find jargon-free discussions by
management of successful and failed strategies which provides guidance for the probing of the rest of the
report.
Signaling view (on dividend policy)
The argument that dividend changes are important signals to investors
about changes in management's expectation about future earnings.
Stakeholders
All parties that have an interest, financial or otherwise, in a firm - stockholders, creditors,
bondholders, employees, customers, management, the community, and the government.
Stock selection
An active portfolio management technique that focuses on advantageous selection of
particular stocks rather than on broad asset allocation choices.
Stockholder's books
Set of books kept by firm management for its annual report that follows Financial
Accounting Standards Board rules. The tax books follow IRS tax rules.
Tactical Asset Allocation (TAA)
An asset allocation strategy that allows active departures from the normal
asset mix based upon rigorous objective measures of value. Often called active management. It involves
forecasting asset returns, volatilities and correlations. The forecasted variables may be functions of
fundamental variables, economic variables or even technical variables.
Tax books
Set of books kept by a firm's management for the IRS that follows IRS rules. The stockholder's
books follow Financial Accounting Standards Board rules.
Tilted portfolio
An indexing strategy that is linked to active management through the emphasis of a
particular industry sector, selected performance factors such as earnings momentum, dividend yield, priceearnings
ratio, or selected economic factors such as interest rates and inflation.
RATE OF RETURN ON STOCKHOLDERS’ EQUITY
The percentage return or profit that management made on each dollar stockholders invested in a company. Here’s how you figure it:
(Net income) / (Stockholders’ equity)
RATE OF RETURN ON TOTAL ASSETS
The percentage return or profit that management made on each dollar of assets. The formula is:
(Net income) / (Total assets)
SALVAGE VALUE
The amount management estimates a piece of equipment will be worth at the end of its useful life, either as a trade-in or if it were sold for scrap.
accrual-basis accounting
Well, frankly, accrual is not a good descriptive
term. Perhaps the best way to begin is to mention that accrual-basis
accounting is much more than cash-basis accounting. Recording only the
cash receipts and cash disbursement of a business would be grossly
inadequate. A business has many assets other than cash, as well as
many liabilities, that must be recorded. Measuring profit for a period as
the difference between cash inflows from sales and cash outflows for
expenses would be wrong, and in fact is not allowed for most businesses
by the income tax law. For management, income tax, and financial
reporting purposes, a business needs a comprehensive record-keeping
system—one that recognizes, records, and reports all the assets and liabilities
of a business. This all-inclusive scope of financial record keeping
is referred to as accrual-basis accounting. Accrual-basis accounting
records sales revenue when sales are made (though cash is received
before or after the sales) and records expenses when costs are incurred
(though cash is paid before or after expenses are recorded). Established
financial reporting standards require that profit for a period
must be recorded using accrual-basis accounting methods. Also, these
authoritative standards require that in reporting its financial condition a
business must use accrual-basis accounting.
gross margin, or gross profit
This first-line measure of profit
equals sales revenue less cost of goods sold. This is profit before operating
expenses and interest and income tax expenses are deducted. Financial
reporting standards require that gross margin be reported in
external income statements. Gross margin is a key variable in management
profit reports for decision making and control. Gross margin
doesn’t apply to service businesses that don’t sell products.
income statement
Financial statement that summarizes sales revenue
and expenses for a period and reports one or more profit lines for the
period. It’s one of the three primary financial statements of a business.
The bottom-line profit figure is labeled net income or net earnings by
most businesses. Externally reported income statements disclose less
information than do internal management profit reports—but both are
based on the same profit accounting principles and methods. Keep in
mind that profit is not known until accountants complete the recording
of sales revenue and expenses for the period (as well as determining any
extraordinary gains and losses that should be recorded in the period).
Profit measurement depends on the reliability of a business’s accounting
system and the choices of accounting methods by the business. Caution:
A business may engage in certain manipulations of its accounting methods,
and managers may intervene in the normal course of operations for
the purpose of improving the amount of profit recorded in the period,
which is called earnings management, income smoothing, cooking the
books, and other pejorative terms.
profit
The general term profit is not precisely defined; it may refer to net
gains over a period of time, or cash inflows less cash outflows for an
investment, or earnings before or after certain costs and expenses are
deducted from income or revenue. In the world of business, profit is
measured by the application of generally accepted accounting principles
(GAAP). In the income statement, the final, bottom-line profit is generally
labeled net income and equals revenue (plus any extraordinary gains)
less all expenses (and less any extraordinary losses) for the period. Inter-
nal management profit reports include several profit lines: gross margin,
contribution margin, operating profit (earnings before interest and
income tax), and earnings before income tax. External income statements
report gross margin (also called gross profit) and often report one
or more other profit lines, although practice varies from business to
business in this regard.
profit and loss statement (P&L statement)
This is an alternative moniker
for an income statement or for an internal management profit report.
Actually, it’s a misnomer because a business has either a profit or a loss
for a period. Accordingly, it should be profit or loss statement, but the
term has caught on and undoubtedly will continue to be profit and loss
statement.
profit module
This concept refers to a separate source of revenue and
profit within a business organization, which should be identified for
management analysis and control. A profit module may focus on one
product or a cluster of products. Profit in this context is not the final, bottom-
line net income of the business as a whole. Rather, other measures
of profit are used for management analysis and decision-making purposes—
such as gross margin, contribution margin, or operating profit
(earnings before interest and income tax).
revenue-driven expenses
Operating expenses that vary in proportion to
changes in total sales revenue (total dollars of sales). Examples are sales
commissions based on sales revenue, credit card discount expenses, and
rents and franchise fees based on sales revenue. These expenses are one
of the key variables in a profit model. Segregating these expenses from
other types of expenses that behave differently is essential for management
decision-making analysis. (These expenses are not disclosed separately
in externally reported income statements.)
unit-driven expenses
Expenses that vary in close proportion to changes
in total sales volume (total quantities of sales). Examples of these types of
expenses are delivery costs, packaging costs, and other costs that depend
mainly on the number of products sold or the number of customers
served. These expenses are one of the key factors in a profit model for
decision-making analysis. Segregating these expenses from other types
of expenses that behave differently is essential for management decisionmaking
analysis. The cost-of-goods-sold expense depends on sales volume
and is a unit-driven expense. But product cost (i.e., the cost of
goods sold) is such a dominant expense that it is treated separately from
other unit-driven operating expenses.
ABM
see activity-based management
abnormal loss a decline in units in excess of normal expectations
during a production process
activity center
a segment of the production or service
process for which management wants to separately report
the costs of the activities performed
administrative department
an organizational unit that performs management activities benefiting the entire organization;
includes top management personnel and organization
headquarters
by-product
an incidental output of a joint process; it is salable,
but the sales value of by-products is not substantial enough
for management to justify undertaking the joint process; it
is viewed as having a higher sales value than scrap
capital budget
management’s plan for investments in longterm
property, plant, and equipment
centralization
a management style that exists when top management
makes most decisions and controls most activities
of the organizational units from the company’s central headquarters
committed cost
a cost related either to the long-term investment
in plant and equipment of a business or to the
organizational personnel whom top management deem
permanent; a cost that cannot be changed without longrun
detriment to the organization
compensation committee
a company committee comprised mainly of members of the board of directors; is responsible
for establishing compensation packages for top management
and setting general compensation policies and guidelines
confrontation strategy
an organizational strategy in which company management decides to confront, rather than avoid, competition; an organizational strategy in which company management still attempts to differentiate company
products through new features or to develop a price
leadership position by dropping prices, even though management
recognizes that competitors will rapidly bring out
similar products and match price changes; an organizational
strategy in which company management identifies
and exploits current opportunities for competitive advantage
in recognition of the fact that those opportunities will
soon be eliminated
cost presentation
the approach to product costing that determines
how costs are shown on external financial statements
or internal management reports
decentralization
a management style that exists when top
management grants subordinate managers a significant degree
of autonomy and independence in operating and making
decisions for their organizational units
design for manufacturability (DFM)
a process that is part of the project management of a new product; concerned with finding optimal solutions to minimizing product failures
and other adversities in the delivery of a new product
to customers
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